1. You bought today (2018 May 10) an 8% Treasury note issued on 2017 Jan 14 with due date 2025 Jan 14 has par value of $1,000 pays coupons every Jan 14 and July 14. Which of the following is(are) correct?
A You received the first coupon payment on 2017 Jan 14
B You will received $560 total coupon payments if you hold this note until maturity
C You bought this note at $1000
D You will receive $1085 on 2025 Jan 14
E None of the above.
2. Consider three bonds in the market with the same face value and some default risk. Bond A has 5 years until maturity with coupon rate 4%. Bond B has 10 years until maturity with coupon rate 2%. Bond C has 20 years until maturity with coupon rate 5%. Which of the following is correct?
A Bond A must have the highest interest rate risk.
B Bond B must have the highest interest rate risk.
C Bond C must have the highest interest rate risk.
D None of the above.
3. Bond Y and Z are identical except that Bond Y has a higher coupon rate than Bond Z. The current interest rate is 5%. Bond Y is sold below par. Which of the following(s) must be correct?
I Bond Y has a coupon rate higher than 5%
II Bond Y has a coupon rate lower than 5%
III Bond Z is sold below par
IV Bond Z is sold above par
A I only
B IIonly
C I and III only
D II and III only
E II and IV only
4. The price of all bonds in the market decline today. One possible reason is that the interest rates increase today. True/False?
5. Which of the following are correct?
I Interest is tax deductibe because it is considered on operating cost.
II A secured debt has higher risk than a debenture.
III A bond with higher default risk tends to pay higher coupon rate, all else equal.
IV Two bonds are identical except that one is subordinated and another one is a senior. If the subordinated bond is ranked B, the senior debt will not be ranked C.
A. I and II only
B I and IV only
C I, III and IV only
D II, III, IV only
E All of the above.
National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and its expected to continue paying a dollar a share long into the future. Given this, one share of the firm’s stock is:
A basically worthless as it offers no growth potential.
B equal in value to the present value of $1 paid one year from today
C priced the same as a $1 perpetuity.
D valued at an assumed growth rate of one percent.
E worth $1 a share in the current market